Mismanagement and butchery

THE tragedy of Marks & Spencer is that it shows there is no business so powerful, no brand so dominant, that a misguided management cannot screw it up.

In the 10 years Sir Richard Greenbury ran M&S in the 1990s, it made cumulative profits of £9bn. Today, after a short-lived recovery, it is still well short of what he made in his worst and final year.

The beginning of the end came with a bungled succession. However correct it might have seemed at the time, Peter Salsbury was the wrong man to follow Greenbury. Experienced and successful retailers say brands need evolution, not revolution, but Salsbury wanted to make his mark. It was too much, too fast; too much change for the sake of change.

Staff were demoralised, suppliers isolated and customers confused, and it helped make a disaster out of a setback. The brand no longer delivered what any of these expected of it and they could not understand what they were getting instead.

At the same time, the boardroom split and the senior ranks were purged or quit of their own volition. The 'lifers' who were forced out were the very people who instinctively understood M&S and could have sorted it out. But the search for new brooms means that since they quit there has been no one at the top who instinctively understood what to do. So the company embarked on a series of disastrous changes that further alienated its traditional customers but failed to attract new ones.

Luc Vandevelde, the chairman, is now departing under a cloud but the City bears a lot of responsibility for falling in love with him and the short-term fixes he prescribed. Yet his achievements never added up to much.

He sold freeholds — the crown jewels — to raise £2bn of cash to return to shareholders for no reason other than that was what the City wanted. He pulled out of Europe and the Far East when most people felt the short-term difficulties were worth persevering with to tap in to the long-term potential of these areas. He fell out with suppliers. He took too long to get rid of Salsbury, and his own appointments have been as uninspired as his strategic moves.

So it is no real surprise the business is in trouble. Rather, it is a tribute to its resilience that it is still there despite six years of misdirection interspersed with increasingly desperate rounds of butchery.

Defenders of current chief executive Roger Holmes say it is not his fault — the business was in freefall when he arrived and he has not only stopped the decline but more than doubled profits since the low.

They say, too, that there is no return to the good old days because the world has changed too much. Tesco and Asda out of town and chains like Zara and Next on the High Street have brought new meaning to the word competition.

Most of all, the buying power is in the hands of the young, and they have never been M&S core customers. This view holds that Holmes had no choice but to re-invent the business, however painful a process that might be.

Maybe that is right. But if it is, the alarming thing for customers, staff and shareholders is that there will be more shocks, bumps and disappointments before the group can be said truly to have found its feet again.

With-profit pain

LEADERS of the nation‘s big insurance companies, up before the Treasury Select Committee of MPs again today, have used their time since the first grilling to try to meet the most obvious criticisms directed at them.

They now have procedures in place for all holders of mortgage endowment insurance to be told clearly where they stand, what they should do and how they should seek redress if that is what they are entitled to.

The chances are that will take the sting out of some of the criticisms and might leave time for an examination of a much more serious issue.

Tens, if not hundreds, of thousands of with-profit policies are in companies or funds closed for new business, or in funds no longer actively promoted. However, as each policy is unique to the specific life assured, they cannot be consolidated unless every minor change is agreed by every life assured — which for all practical purposes is impossible.

That means legacy computer systems are being kept alive to handle the administration long after their natural lives and there is little scope for efficiencies and cost saving. So the industry has potentially a massive back book of policies it has to see through to completion with no new money coming in to help defray costs.

As policyholders dwindle in number, the relative burden on those left becomes heavier, and the return on the policies diminishes.

When the fuss over endowment mortgages is long forgotten, this could emerge as the real long-term problem for the industry.